Utility performance with energy efficiency programs

Abstract

This study uses quantitative regression analysis to understand how different performance incentive mechanisms (PIMs) influence energy savings achieved by U.S. electric, investor-owned utility (IOU) energy efficiency programs. Energy efficiency programs encourage energy consumers to upgrade technologies and change behaviors in order to reduce overall energy demand. Reduced demand, in turn, produces energy cost savings, improved air quality, lower greenhouse gas emissions, and increased energy security. In the U.S., many states use investor-owned utilities as the primary administrators of local energy efficiency programs. The actions of these utilities are heavily regulated by state utility commissions and are believed to be influenced by a variety of state energy policies. By using energy efficiency program data from jurisdictions with similar pro-efficiency policies but a variety of PIM structures, this study attempts to quantify the correlations between achieved energy savings and three broad categories of PIMs - performance targets (PT), shared benefits (SB), and return on equity (ROE). Results suggest that the presence of any of the three PIM structures is correlated with increased energy efficiency savings. However, there is more certainty in the correlation of SB and PT PIM structures with increased energy efficiency savings than the ROE PIM structure. Based on these findings it is recommended that state utility regulators interested in increasing energy savings from utility-administered electric energy efficiency programs implement PIMs in conjunction with other pro-efficiency policies. Specifically, when complemented by energy efficiency resource standards, energy efficiency program mandates, and revenue decoupling or lost revenue adjustment mechanisms, PIMs have a statistically significant, positive influence on energy efficiency savings. It is also recommended that when state regulators weigh the pros and cons of specific PIM structures, they recognize that there is more certainty that SB and PT PIM structures encourage higher energy efficiency savings, and less certainty that ROE PIM structures do the same.